Conclusion, Investment Implications, Strategy
Consumer Discretionary stock Arcos Dorados Holdings (ARCO) is currently testing major underlying support near $6.43 amid monthly oversold conditions, setting up a potential low risk buying opportunity. A sustained rise above the $6.43 area would target a 23% rise to $8.11. This is an Asbury Value idea.
In addition, we have exited our Jun 21st long idea in Cal-Maine Foods (CALM) before 2nd Quarter earnings tomorrow for a 16% gain while also outperforming the benchmark S&P 500 by 10%.
Analysis and Rationale
Arcos Dorados Holdings Inc. (ARCO) operates as a franchisee of McDonald’s restaurants. The company has the exclusive right to own, operate, and grant franchises of McDonald’s restaurants in 20 countries and territories in Latin America and the Caribbean, including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curacao, Ecuador, French Guiana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Trinidad and Tobago, Uruguay, the U.S. Virgin Islands of St. Croix and St. Thomas, and Venezuela. As of December 31, 2021, it operated or franchised 2,261 restaurants. The company was founded in 2007 and is based in Montevideo, Uruguay.
The upper panel of Chart 1 below plots ARCO daily since January along with its 200-day moving average, a widely-watched major trend proxy currently at $6.43. ARCO is currently testing and rising from this level as major underlying support. The lower panel plots monthly overbought/oversold conditions according to the 21-day (monthly) Stochastic oscillator. The green highlights show that ARCO is currently rising out of monthly oversold extremes and that the previous instance of this coincided with a Tactical bottom on May 9th.
These conditions suggest another similar low-risk buying opportunity now.
Table 1 below shows that considering an $8.11 upside target with a protective stop placed below the $6.31 area, a long entry price of $6.60 would provide a 1:5.2 risk/reward ratio (risking $1.00 to make $5.20) with an initial risk of 4.4%.
We Have Closed Out Our Long Idea In Cal-Maine Foods
Chart 2 below is an updated version of the one displayed in our Jun 21st Asbury Alert entitled Cal-Maine Foods (CALM): Low-Risk Buying Opportunity?, It shows that we have closed out our Jun 21st long idea in CALM this morning for a 16% gain. Not shown is that CALM also outperformed the benchmark S&P 500 by 10% during this same period.
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Please consult the table showing our Asbury 6 key market metrics to help determine if this investment is suitable for you.